Monday, June 30, 2008

The month of June, 2008 has been pretty awful for the stock market. According to Dow Hits Bear-Market Territory, Signaling Woe For Economy in The Wall Street Journal, June 28-29, 2008, the Dow has fallen 20.2% from it's October, 2007 high. The article expects that the market has further to go before bottoming.

While I have been hunkering down and expecting the market to get worse, I take very little comfort in being right. Like many others who are retired, my financial situation is dependent on the stock market.

However, even though the bear market will be painful, there is a bright side on which one can capitalize.

Great buying opportunity. As I've written before, I prefer not to buy beaten down stocks, mainly because there usually is a good reason. However, a bear market lowers prices of all stocks, both the good and the bad.

Great shorting opportunity. In a bear market, the trend of most stocks is down, making it a great time to short individual stocks. For reference, going short means selling a "borrowed" stock and then buying it back in the future, hopefully for a lower price.

At this point, I think the best shorting opportunities are in financials, retail and consumer non-essentials. Hopefully, I will also have my list of stocks for potential shorting by July 7, 2008.

Finally, I plan to keep all funds (e.g. daily retirement expenses) needed for the short term (3-5 years) in cash or CDs. That way a bear market decline won't have a catastrophic impact on our short term standard of living.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

As a result, I will be modifying my trading strategy to include shorting stocks. For reference, going short means selling a stock and then buying it back in the future, hopefully for a lower price. If the stock should go down, one makes a profit. If the stock rises, one loses money. This is the opposite of going long, which means buying a stock and selling in the future, hopefully for a higher price.

Here is how I am going to short stocks:

Buy mutual funds or ETFs that short. Currently, I own the Prudent Bear (BEARX), which engages in shorting individual stocks, owning commodity stocks or treasuries. I first bought the Prudent Bear in the last bear market in 2002. I recently purchased some more in the last three months.

Since 2002, a number of inverse ETFs have been created that essentially enable an investor to short the market or a specific sector. I am not a big fan of shorting the overall market, since I believe the stock market has a long term upward trend. However, I am considering the Short Financials (SEF) or the UltraShort Financials (SKF) as a potential sector short.

Short individual stocks. In a bear market, hundreds of stocks will be setting new lows every day. While almost all stocks will fall, the worst business will fall even faster in a bear market.

As an initial screen, I have looked at the stocks ranked 5 in Value Line. These stocks are expected to have the lowest return in the next year. In a bear market, that typically means a negative return.

For perspective, I do not short bubble stocks that are going up, e.g. housing in 04/05 or energy in 07/08. I typically short stocks that are already in a downward trend. Therefore, I will also look at stocks with new lows as potential short candidates.

Finally, I expect further declines in sectors such as the financials, retail, and perhaps consumer non-essentials.

One example of stock I am considering for shorting is Las Vegas Sands (LVS). The casino industry is an example of a consumer non-essential that is has been hit by consumers spending less, on top of being in a bad housing market. Its 52 week high is $147.76 and, this past Friday, it hit a new low and closed at $47.10.

Although I've increased my cash position, I don't plan to sell off all my long positions at this point. I optimistically still believe market will be up in the long term, e.g. 5 to 10 years. I am only shorting stocks to offset losses from my long positions in the short term.

Disclosure: At time of publication, I only own shares of The Prudent Bear Fund.

For more on New Beginnings, check back every Sunday for a another segment.

This is not financial or investment advice. Please consult a professional advisor.

Saturday, June 28, 2008

If the price of oil remains over $140 a barrel, I expect that there will be significant inflation. That's because the cost of petroleum is a large part of the products we consume, from food to durable goods. Why? Not is the oil is needed to make and transport the finished products , but many of the starting materials for products that we use are petroleum based.

For example, Dow Chemical just raised its prices by as much as 25% for the second time in a month, which impacts other companies, such as consumer products (e.g. detergent, shampoo, diapers) maker Procter & Gamble. P&G recently announced that the cost of its products may rise by over $2 billion in the next fiscal year, due to rising energy and raw material prices.

While many manufacturers have minimized price increases to date, the higher cost of oil will have to eventually trickle down to the end consumers, resulting in higher prices for everyday goods.

For more on Reflections and Musings, check back every Saturday for a new segment.

Friday, June 27, 2008

A couple weeks ago, I received an invitation to test drive a Maserati. Normally, a Maserati would not be part of my set of cars under consideration, but I guess that's why "marketing" exists:-) Besides, since I retired in my forties, I have extra time for extracurricular activities like these. Also, a gift certificate for Omaha steaks was offered in return for doing a test drive.

I arranged to do a test drive within a week of receiving the information. For convenience and to save gas, I scheduled the visit around other errands I was doing in the area. Here's what I learned on the test drive of a Quattroporte:

Price - The MSRP was about $120,000. I knew the Maseratis were expensive, but didn't realize how high. Of course, this is way outside my price range and made me wonder how I made the list for receiving an invitation.

Test drive - I was a bit nervous taking out a car of this value. Fortunately, the dealership had already identified a low traffic country road to use. The car handled very well and I even briefly tested the 400 HP engine when accelerating from a stop.

Sales people - They were very courteous even though it was apparent we were not prime candidates. My friend and I showed up in shorts on our way to a golf course. In addition, they knew I was doing the test drive due to a promotion.

While I enjoyed the test drive, I won't be buying one in the near future. Although the Quattroporte is a very nice car, $120,000 is still too expensive for me to spend on regular transportation, especially since I prefer to pay cash for our cars.

For more on Reaping the Rewards, check back every Friday for a new segment.

Thursday, June 26, 2008

I'm sure many readers have experienced a child receiving a gift and then having the child more interested in the box than the present. I have a video clip of our daughter doing exactly that with one of her first presents. The present was a colorful, activity rich stroller attachment to made rides less boring. After briefly looking a the toy, she focused on the package and began inspecting it in detail.

Recently, I had a similar experience with a summer activity. Our daughter loves water. She enjoys baths, playing in the sink and being in the rain. This summer, we purchased an annual membership at a local water park, thinking it would be the ultimate in activities.

However, I soon learned that there are alternate, and inexpensive, forms of outdoor water entertainment. Earlier this month, I was watering our lawn and I asked our daughter if she wanted to play in the sprinklers. Of course, the answer was yes and we put on her bathing suit. She played for over an hour in the sprinklers and had every bit as much fun as at the water park. The only cost was the water, which was going to be spent anyway.

Although I'm sure we'll get our money's worth from the water park membership, it may be one we let expire next year.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, family or entertainment advice. Please consult a professional advisor.

Wednesday, June 25, 2008

Curly: You know what the secret of life is?Mitch: No what? ...Curly: One thing. Just one thing...Mitch: That's great, but what's the one thing?Curly: That's what you've got to figure out.~ City Slickers (1991)

Often, I find there is just too much information. There are thousands of books on personal finance. There are millions of personal finance blogs. And we all have colleagues, family and friends with their perspectives. In my experience, I am most successful when I am able to focus on one thing and do it well. Of course, it's important to find the right one thing.

For personal finance, our "one thing" has been living below our means. As noted in Is There Anything Really NEW In Personal Finance?, our #1 personal finance principle is spending less than we earned. Living below our means made it easier to implement some of the other principles such as #2, saving and investing, and #3, using debt sparingly.

Also, living below our means became a virtuous cycle. By consistently living below our means, only a portion of each raise was used for spending. Thus, with each raise, our standard of living increased and more was being saved. As a result, our emergency and retirement savings grew steadily over time.

How did we know we had the right one thing? Honestly, we only knew in hindsight after retiring in our forties. In retrospect, here are some aspects that helped us know we had identified an appropriate "one thing" for us :

Consistent with our values. Both my spouse and I grew up in families with lived frugally and we have a modest lifestyle. Although we may spend a little more on a home and healthy foods, we are not extravagant with cars, clothing or other expenses. For example, I will drive my 2003 truck at least 5 more years, and perhaps 10 years, barring any mechanical issues. We eat at home since my spouse enjoys cooking and I do a number of home maintenance items myself.

Sustainable over a long period. Without too much sacrifice, we have been able to live below our means for 13 years, as a family, and up to 25 years by ourselves. Simplicity was part of the reason we were able to follow this principle.

Delivers the desired result. My spouse was able to quit working in her thirties and I was able to retire in our forties. For me, results are the ultimate validation of a choice.

Of course, the "one thing" may vary for different people and YMMV. So everyone needs to figure out their own "one thing" and then evaluate if it is working for them.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Tuesday, June 24, 2008

Throughout the summer, Regal Cinemas is hosting the Free Family Film Festival with local sponsors. Every Tuesday and Wednesday, selected Regal Cinemas will show a G and PG rated film at 10AM. The admission is free, limited only by the capacity of the theater.

Monday, June 23, 2008

When one admits that nothing is certain one must, I think, also admit that some things are much more nearly certain than others. ~ Bertrand Russell

Recently, there there seems to have been a shift in confidence among financial experts in their projections.

There doesn't seem to be as much air of certainty for their recommendations and predictions. In his last presentation, the head of my financial advisor team commented on this phenomenon and how these were people that were usually certain about their projections. My father-in-law made a similar comment about his view of the global economic picture. While he as been able to anticipate key trends of the past twenty years, the direction of the future isn't as clear.

That's probably because we are in the midst of a shift to a new era, not unlike the transition from an agricultural to an industrial economy in the early 1900s. However, it it isn't clear where we're going from industrial. Some possibilities are information, service or financial.

I believe that the shift will be towards an information era, with particular focus on the scale of knowledge transfer. Just as the industrial transition was about the systematization and scaling of knowledge into making products, the information era will be about the systematization and scaling of knowledge into product manufacturing and services.

To me, a potential winner in the future information era isAmazon.com. While some see Amazon.com (AMZN) primarily as a retailer, I think of them as an expert supply chain and back office operations company. Instead of keeping the expertise proprietary, Amazon.com is selling the knowledge to small companies in the form of supply chain and back office services, at a cost lower than a small company could achieve themselves. If Amazon.com could provide these services for a large number of small companies, the revenue stream would be tremendous.

Another potential winner is Google (GOOG), whose mission is "to organize the world's information and make it universally accessible and useful." While Google is the leader in search, the area that may be potentially big (and still to be proven) is their work on cloud computing.

In both cases, these companies are willing to sell core expertise to other companies that can benefit from the knowledge and competencies, which will eventually drive down costs significantly and improve productivity. As a result, I believe Google and Amazon will be two of the major winners in the future economic era.

Sunday, June 22, 2008

Our daughter is having her first summer vacation from school. Last month, she completed her final days in 3 year old pre-school. Only 15 more years to go:-) While her teacher mentioned some kids get confused, she has taken it pretty well, partly because she had attended 2 year old pre-school/day care. Also, there is almost no break since we have already scheduled several camps for her through July. She has just completed an art camp and a nature camp. In addition, she is still going to birthday parties of her old classmates.

Saturday, June 21, 2008

This year, we achieved a new personal milestone for our federal tax return. Our return weighed over one pound when it was checked for postage. Yes, that was over one pound of paper and it cost $5.05 for postage.

Our return is not that complex. Most of the paper submitted was supporting documentation from the stock trades made in 2007. In the past, I had be transferring the data to an excel spreadsheet and attaching it. However, this year, I found out that the IRS accepts the gain/loss summary from my brokerage, if I attach it to the return. So I asked my broker to send an extra copy and I mailed it in as an attachment to the Schedule D.

Filing electronically would not have reduced the the amount of paper much, unless I entered each stock transaction, which would also have taken a lot of time. So I still would have sent the brokerage gain/loss statements separately with Form 8453.

Someday, I expect the government will require brokerages to withhold taxes, as is currently done for wages. If so, it will probably reduce both my time and paperwork involved for filing taxes.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Friday, June 20, 2008

The Nightly Business Report is doing a series on retirement and recently did a show on the benefits of relocating. In the show, one retiree described how moving to Florida saved several thousand in heating costs and $1200 for having no state income tax. Although we don't plan to relocate at this time, I have begun thinking about possible options that could help reduce retirement costs:

No income tax. Seven states, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, have no income tax. Two others, New Hampshire and Tennessee, only tax interest and dividend income. Another option is to look for states with low income taxes. Here is a list of 2008 state income tax rates.

No tax on social security. According to the AARP, 26 of 41 states with broad based personal income taxes do not tax social security. The 15 states that do tax social security are Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, West Virginia and Wisconsin.

No sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax. Colorado is a low sales tax state at 2.9%. Here is a list of 2008 sales tax rates by state.

No tax on retirement accounts. According to Tax-Free in the Rust Belt, by Ashlea Ebeling, three states, Pennsylvania, Illinois and Mississippi, with broad income taxes do not tax any retirement withdrawals. Another seven states, Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Michigan and New York, exempt all federal, state and local government pensions.

Low property taxes.Property Taxes: Where does your state rank? by MSN.com shows the rank order for the 50 states. New Jersey, New Hampshire and Connecticut are top ranked for the highest taxes. Louisiana, Alabama, and West Virginia are the have the lowest taxes.

Lower Cost of living. This calculator estimates the change in expenses when comparing two metropolitan areas. Sometimes there is an additional windfall from selling a home in a higher cost of living area and buying an equivalent or downsized home in a lower cost of living area. Some folks have even moved abroad to Costa Rica or Mexico to lower costs.

Unfortunately, no one location is the lowest cost in all categories. Thus, it is important to look at each state with respect to one's own situation. In addition, a downside of relocating is being away from family and friends, causing some retirees to move back to their original hometown.

In our case, our location only has two of the above benefits, a lower cost of living and no tax on social security. However, at this time, we have no plans to move our retirement costs. We still prefer to be close to family and friends, which makes it worth the higher expenses that we have.

For more on Reaping the Rewards Reflections, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Thursday, June 19, 2008

Today, I hit my personal best for nine holes of golf, 43 with four pars. I was pleased about the round and score since I've always been a duffer in golf. Afterwards, a friend and I were discussing how we see sports different than the kids of today.

While I am a great fan of kids playing sports, it seems sports has evolved to almost being a job for kids. When my friend and I played organized football, basketball or baseball, we did it for fun. Rarely did our parents chauffeur us to practice and games. Often, our parents didn't even watch the games. And if there wasn't organized sports, we'd play with our neighborhood friend in pick up games.

Today sports seems to carry much higher importance. For example, I know a number of kids that play and workout for a sport year round. When they are not playing for their primary team, they are playing for select traveling teams, participating in skills camps, or doing workouts on their own. In addition, parents invest significant time and money in the child's sports activities.

As our daughter starts participating in sports, I hope that she will learn, as we did, that athletic activities are primarily for fun. That way she won't become overly involved in one sport at the expense of many other opportunities in life.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or sports advice. Please consult a professional advisor.

Wednesday, June 18, 2008

My dad taught me that a dollar reduction in taxes was more than a dollar earned, since taxes would need to be paid on earnings. So I am always interested in using tax breaks for which I qualify.

Last week, I took advantage of one of the special tax benefits that is valid from 2008 to 2010, the 0% long term capital gains tax rate. For joint filers with taxable income below $65,100 and single filers with taxable income below $32,550, the federal income tax rate for long term capital gains and qualified dividends is ZERO. That's right - ZERO.

On June 9, 2008, I sold Potash (POT) for a 211% gain after holding it for one year and 2 days. As a result, I will owe no federal taxes on this long term gain. Google (GOOG) is my other long term holding which can benefit from this tax benefit and I had sold part of my holdings on May 12, 2008.

Since the benefit is only for federal income taxes, I will still owe state taxes on the profit. However, I still enjoy not having to pay any federal income tax on these gains.

Disclosure: At the time of publication, I own shares of Google.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Tuesday, June 17, 2008

Driving less because of gas prices? Putting that SUV in the garage and using the compact primarily? Maybe you can also save money on car insurance.

Last week, I read an article in The Wall Street Journal about getting lower insurance rates for driving less than 7500 miles per year. I already knew about and had switched to the category of driving less than 10,000 miles per year. However, I did not know about the 7500 mile threshold.

Since the beginning of 2008, I have driven my truck about 1500 miles, which is significantly down from the 12,000 miles per year I drove before retiring in my forties. Retiring eliminated a little over 7000 commuting and work related miles per year. I called my agent and she confirmed I would save 18.6% on my car insurance premium if I drove under 7500 miles per year. Immediately.

To note, we have not been consciously trying to drive my truck less. It just happened, because we use my spouse's car for transporting the entire family. Thus, it has been a great bonus to have lower gas costs and lower insurance premiums for my truck.

For more on Ideas You Can Use , check back every Tuesday for a new segment.This is not financial or insurance advice. Please consult a professional advisor.

Monday, June 16, 2008

With the market decline of early 2008, these stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. Since all but one stocking holding has been sold, this will be the last update for this stock buy list. The original portfolio was based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG).

The overall portfolio gained 0.6% last week and now has total return of 21.3%. I sold Potash, to take advantage of a 0% long term gain tax rate, and Intuitive Surgical because its price had been below 50 day moving average for a while. My remaining holding is 20 shares of Google. Here's the current status of the the portfolio:

*On 2/8/2008, the system gave a sell signal for CLB.** On 3/7/2008, the system gave a sell signal for AAPL and GOOG. However, instead of selling at a loss, I will move this portfolio's remaining 20 shares of GOOG to my core holdings.

The market continues to be choppy. As of the close on 6/13/08, the Dow, Nasdaq and S&P 500 indices were respectively down 6.09%, 7.46%, and 6.47% year to date. Although significantly up from lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update, the Nasdaq and S&P 500 are down about 0.8% from the previous week.

I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008 with many short term rallies and declines. For now, I plan to close out the 10/15/2007 and January, 2008 buy lists. The remaining Google shares will be moved to my core holding portfolio. Hopefully, they can be sold in the future at a gain.

Overall, I am happy with the 27.9% gain from the sold shares. I will be updating the modified Unemotional Investor Growth stock buy list to identify new potential purchases for my trading portfolio.

Full disclosure: At the time of publication, I own shares of Google.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Sunday, June 15, 2008

Although my dad and I often differed in our assessment of stocks, as the trustee with investment responsibilities, I honored his equity strategies after he passed away in January, 2006. Until late last year, I kept his portfolio holdings 100% intact. The portfolio results show that my dad made some excellent investments in energy stocks before he passed away.

One of his holdings, Contango Oil & Gas (MCF) has risen 10 times since it was purchased. The investment has grown from about 10% of the portfolio to about 50%. I did not sell any of MCF through the end of 2007. His other great pick was Chesapeake Energy (CHK), which is up about 8 times since he bought it. It is now represents over 90% of my mom's IRA.

I wish he had lived to see the price of these stocks today. He would have been very happy to see his energy investment strategy be successful and how he has continued to support my mother financially.

However, at this point, I think it may be appropriate to make some adjustments to the portfolio. Potentially, the oil/energy stock bull market may be nearing an end. However, I also don't want to completely miss out on continued gains, which are still likely. Therefore, I have begun trimming the positions in MCF and CHK up to 50%. By doing so, we will be able to protect some profit should the energy bull market end soon and also participate in any continued energy bull market..

Disclosure: At the time of publication, I don't own any shares of Contango Oil & Gas or Chesapeake Energy.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or stock investment advice. Please consult a professional advisor.

Saturday, June 14, 2008

Last month, I went to my doctor to have physical examination and to check out my foot and ankle pain. I've been avoiding going to the doctor primary because I've had a history of ankle injuries due to football and they have always healed without any medical attention. Also, since I'm from the old school of playing through pain, I've continued to play tennis in a league and casually.

Since the ankle has not stopped bothering me for a while, I thought is was time to check with my doctor. However, it seemed to get better just before the appointment, and a month later, it seems 90% healed, without any medical intervention. As frequently happens, my symptoms seem to improve with just the act of seeing my doctor.

I sometimes wonder why this is so. Here are my thoughts:

Change in actions. My typical action with pain is to rest and let it heal. However, after making the appointment, I started to make additional interventions, such as taking aspirin or vitamins, to help reduce inflammation.

Positive thinking. The collective good thoughts by my doctor and me enabled my pain to be healed.

Coincidence. Although slow, the ankle was due to be healed after about a year. It was already happening when I went to my doctor.

I suspect the cure was due to a little bit of all three:-) I have been remiss in exercise and therapy for the past couple years. However, recently I've decided that my physical fitness was declining noticeably and took actions to become more motivated to exercise. In addition, I have been more diligent about taking my vitamins and aspirin, when needed. These, plus a dose of positive thinking, have probably helped my ankles and feet feel better.

Friday, June 13, 2008

Is $1 Million Enough to Retire On? by Emily Brandon from U.S. News & World Report shares the opinions of three experts. Michael Farr votes no (for most people), Mauricio Soto says yes for people with annual incomes below $120,000 per year, and Jonathan Pond says definitely, since many people only need $100,000 t0 $200,000 plus social security. So what's the right answer?

As the article points out, it depends on the specific situation of an individual. There is no one right answer. Here are the key factors I believe affect the answer:

Satisfaction with current lifestyle. If one is happy with the pre-retirement lifestyle, then it is easy to calculate the inflation adjusted cost to maintain the current lifestyle. Many people I know have growing incomes and continue to increase their lifestyle costs, e.g. new cars, bigger homes, entertainment. In such cases, it is hard to calculate what is really needed in retirement.

Retirement age. Those that retire at 62 or later can choose to file for social security payments. Retiring before 62 requires sufficient savings to cover the gap from not being able to collect social security.

Amount of debt. Having debt in retirement can significantly increase the savings needed. To minimizes monthly expenses, it's best to be debt free.

Life expectancy. While the above three factors can be controlled, life expectancy is relatively uncertain, but may have the biggest impact. If one only lives a year after retirement, very little savings is needed. However, if one lives until 100 significantly more funds are needed.

In our case, we our answers were: 1. yes; 2. forties; 3. only a mortgage; and 4. nineties. Based on our specifics, we calculated that we needed save 20 times our pre-retirement salary to be reasonably certain of having sufficient funds. However, if I retired later or could get social security, the number might be reduced to between 12 and 16 times salary.

How much I need to retire depends on our salary. If I hypothetically made $50,000, I would want $1 million in order to retire in my forties. If I were planning to retire at 67, I would want to have $600,000 since social security payments could cover some of our expenses. However, if I were earning $100,000, the savings needed would be $2 million to retire in forties and $1.2 million to retire at 67.

Of course, I strongly recommend consulting with a financial professional when evaluating the options. It was very helpful to have a third party confirm our analysis before we proceeded with retiring in our forties.

For more on Reaping the Rewards , check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Thursday, June 12, 2008

Since we are adoptive parents, we have spent a lot time being evaluated, qualified and confirmed as being acceptable parents. As a result, I do think a lot about being a good parent, and a good father. While there is no guide book, there is an abundance of articles and books in the field. Recently, I read 10 Ways To Be A Great Dad at MSN.com and Ten Ways to be a Better Dad from Oprah.com.

Here's my list:

Be respectful and considerate of family. Treat them as they would like to be treated, as I would have like to been treated as a child, or as I want to be treated as an elderly parent. Attitudes towards others are often learned from parents.

Be available. One reason I retired in my forties was to make sure I didn't miss time with my daughter. With 60 hour minimum work weeks and travel, I knew that I would be missing a lot, and I wouldn't get that time back later. I now have time to do just about anything my daughter would like.

Be a teacher. I must admit this is an opportunity area for me. I have always been quick to learn but not as good in teaching others. My wife, who comes from a family of teachers, has been excellent in this area. I'm still learning on how to make teaching fun. Teaching may also include occasional discipline, when needed.

Be a listener. I will never forget a short conversation I had with our CEO when I was a relatively new employee. He gave his entire attention and discussed my topic, as if it were the most important thing at the moment. I try to give my daughter similar attention when she has something to say.

Only time will tell if I figured it out and whether I will be remembered as a great dad. In the meantime, I get great satisfaction from having lots of time with my daughter every day.

For more on Crossing Generations, check back every Thursday for a new segment.

Wednesday, June 11, 2008

Wealthtrack had a discussion about investment risk on the 5/30/08 show (transcript available free for two weeks). The three panel guests, Charles Ellis, Robert Litterman, and Jean-Marie Eveillard, shared some interesting perspectives on risk, which are summarized below:

The panelists discussed three types of investment risk:

Market risk - This is the fluctuation of the total stock market. According to Robert Litterman, investors should determine the maximum loss one is willing to accept. Is it 10, 20 or 50%. Once this number is identified, one can determine an appropriate allocation to stocks and minimizes market risk.

From 1950 to 2007, the yearly stock market return has ranged from a -29.6% in 1974 to 42.3% in 1954. Thus, to cap annual stock market losses at 15%, one should not be more than 50% invested in stocks.

On the other hand, Charles Ellis believes that market risk should be irrelevant to investors that have a 30, 40 or 50 year time horizon. Historically, during that time frame, there is no risk that the market will be down.

Business risk - This is related to whether a particular company will do well or not. For individual stock pickers, this is the most important risk to manage. Understanding a business, its strengths and weaknesses, and the probability of doing well is the most important part of choosing a specific stock. A good analysis of a business will be rewarded with excellent returns when investing in the stock.

Valuation risk - This is related to overpaying for a stock when buying it. However, according to Jean-Marie Eveillard , if one has analyzed the business well, valuation risk will be minimized, since the value will rise in the long term.

Actively managed investing is a zero sum game. The sum total return of all investors is the market return. A small percentage managers will outperform the market, but this will be offset by a larger percentage managers under perform the market. For most investors, buying a global diversified index is the best investing approach.

After watching this show and summarizing the key points, I am considering modifying my investment strategies. Historically, we have been invested in individual stocks and fixed income, such as bonds and CDs. Currently, with the exception of our daughter's 529 plan, we have very little invested in index funds or index ETFs. Many others, such as Vanguard, have long made a case of low cost index funds and the show's discussion on risk have provided me additional insight on how index funds (and good asset allocation) can help minimize risk. Also, I think index funds/ETFs may help simplify managing our investments. While I will always allocate a portion of our funds to individual stocks, I expect to have a larger part of our portfolio in index funds/ETFs in the future.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Tuesday, June 10, 2008

I usually enjoy doing a weekly check of my trading account. After last Friday's nearly 400 point drop in the Dow, I wasn't looking forward to summarizing the status over the weekend. I expected the results to look bad. However, since I do a weekly summary, I grudgingly looked at and summarized the results.

While bad news is not something a particularly enjoy, reviewing last week's results reminded me that it is a good idea to evaluate and deal with the news versus avoiding it. Here are some of my reasons:

Bad news usually doesn't go away. I have not found avoiding, ignoring or denying bad news to make the news disappear. Sometimes bad news will get worse if nothing is done. As one of my colleagues once said, "It is what it is," meaning that a good approach was to accept and then deal with it.

It may not be as bad as originally thought. When there is lots of bad news, I sometimes subconsciously expand it. By reviewing the situation, I hopefully can determine what are issues and what are not.

Opportunity to change. Most important, timely review of bad news enables me to take appropriate action, in particular, to keep the situation from getting worse.

Surprisingly, my trading portfolio was up slightly last week, due to the advance of a single stock, Potash (POT). While the overall result turned out well, last week's market action did convince me that the recent rally is probably over. Therefore, I will continue to increase my cash postion by selling some stock. Yesterday, I took the opportunity to sell off two of the three remaining stocks from my buy lists, Potash and Intuitive Surgical (ISRG) for a 211% and 5.8% return respectively, even though my modified Unemotional Investor Growth system has not given a sell signal. The last holding is Google (GOOG). Unfortunately, I have held long past its sell signal, since other shares of Google have been one of my core long term stock holdings. A bad decision, for now, since I could have sold the trading position in for a very small gain last week.

Disclosure: At the time of publication, I own shares of Google do not own any shares of Potash or Intuitive Surgical in my trading accounts.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Monday, June 09, 2008

With the market decline of early 2008, these stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. The original portfolio was based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG).

The overall portfolio gained 0.5% last week and now has total return of 20.7%. The gain was due to 8.9% advance in Potash which offset losses for Intuitive Surgical and Google. Here's the current status of the remaining stocks in the portfolio:

*On 2/8/2008, the system gave a sell signal for CLB.** On 3/7/2008, the system gave a sell signal for AAPL and GOOG. Previously, I had planned to hold GOOG since it is part of my core holdings. However, now I will sell this portfolio's remaining 20 shares (or an equivalent number of shares purchased earlier) of GOOG over the next few weeks, if the shares continue to rally.

The market continues to be choppy. As of the close on 6/06/08, the Dow, Nasdaq and S&P 500 indices were respectively down 6.86%, 6.70%, and 6.46% year to date. Although significantly up from lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update, they are down 2-3% from the previous week.

I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008 with many short term rallies and declines. For now, I do not plan to add any more to the amounts that I have already invested in the above tables and will be looking to close out positions, even without a sell signal. Since Potash just became a long term holding, I will take some profits on at a 0% long term gain tax rate this week, if the price holds on Monday. Also, I may sell Intuitive Surgical if it does not rise pass $307 in the next week.

Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Sunday, June 08, 2008

Now that both party's Presidential nominees have been identified, the real campaigning can begin. I fully expect to be deluged by campaign information from now until November. Of course, I will be following issues that affect my personal finances, e.g. tax policy, new programs or entitlements. I also will want to hear what will be stopped create funds for the changes in spending. Thus, the congressional elections will be of interest, since Congress is where spending is determined.

In addition, I will be very interested in the local tax levies, since I expect a higher number than normal to be on the ballot. In our 2008 primary, levy supporters benefited from the higher than normal electorate turnout and passed some levies that had previously failed.

No matter who is elected, I believe that tax rates will increase and the economy will worsen. Hopefully, I will hear some good, sound ideas from the candidates on how they might "change" this situation.

For more on New Beginnings, check back every Sunday for a new segment.

Saturday, June 07, 2008

Taking money from those that have managed it well and giving it to those who don't manage money well doesn't makes any sense to me. The process is commonly referred to as "redistribution of wealth," which I think is a misnomer since it is only dealing with one aspect of wealth, money. Here are my thoughts on this matter:

Wealth is a mindset. Money doesn't create wealth, people do. Wealth results from the excellent stewardship of one's money. Giving someone money doesn't not guarantee they will be able to manage the money well. In many cases, the money will be managed in the same way as before. A good example is the subprime crisis. People who didn't qualify for prime mortgages didn't become better managers of money when they receive sub prime loans.

Money transfer may cause other behaviors that reduce wealth. A colleague told me a story about a high school student he was tutoring. She was doing very well and was on track to get a 4 year college scholarship. However, during her senior year she became pregnant and dropped out from school. She explained to him that she wanted to leave her home and having a child would enable to get an apartment and support so that she could live on her own.

In my experience, building wealth is about developing plans, making choices and doing the work to achieve the goal. Money redistribution is about meeting qualifications (e.g. income, dependents, etc.) to get "free" money. Of course, I am not opposed to short term safety net for people who have fallen on hard times. However, I also believe there are people who build "free" money payments into their plans and lifestyle. Unfortunately, "free" money often doesn't change the recipients mindset, which is the real improvement needed to truly redsitribute wealth.

For more on Reflections and Musings , check back every Saturday for a new segment.

Friday, June 06, 2008

The Risk of Ruin for Retirees by Andy Mayo from Investopedia, shares why average returns aren't sufficient. When withdrawing funds the sequence of return may have much more impact than average return. The article demonstrates this by taking the 17 year period from 1987 to 2003, during which there was an average annual return of 13.47%.

Taking a $100,000 nest egg and withdrawing an inflation adjusted $10,000 each year left the account with $76,629 at the end of 2003. Not bad.

However, the article then reverses the order of the returns, starting at 2003 and going to 1987. While the average annual return is still 13.47%, the account balance after 17 years is -$187,606. The reason is that negative returns in years 2-4 significant reduce the account, while withdrawals are being made. Since the money is withdrawn, it can't help the account recover in later years.

I think there are two lessons to be learned from this article:

Use probability analysis to determine the nest egg needed. The current best approach is Monte Carlo analyses that run a thousand scenarios with randomized returns. The analysis of our savings shows we have about a 90% chance of not outliving our savings.

Adjust spending with market returns. Simply, spend below target in the years that returns are down and spend above target in the high return years. That way savings are preserved in down years, allow them to recover when the market has a good year.

The other strategy we are using is to have 3 -5 years of expenses in short term (3-5 years) fixed income investments. By doing this, we guarantee that we don't have to sell low to create income. And if the market does well, we can spend a little bit more :-)

For more on Reaping the Rewards Reflections , check back every Friday for a new segment.

Thursday, June 05, 2008

Yesterday, I saw regular unleaded gasoline for $3.799 per gallon. Gasoline has been at $3.999 per gallon for the last few days. So I jumped on the opportunity to fill up the car. While pumping the gas, I noticed an ad for a 5% gas rewards credit card that showed example savings for per gallon prices from $2.50 to $3.15. Boy, the fast rise in gasoline prices has that print advertising obsolete. If I only could buy gas today at $3.15 per gallon.

I still remember the days when my parent bought gasoline for 28.9 cents per gallon in the sixties. They would drive across town to save a penny a gallon. Then there was the gas crisis in 1974 and gasoline rose to 50 cents and then 75 cents a gallon. Adding insult to injury, there were gas lines to buy at these prices.

About the same time as 28.9 cent gas, McDonald's hamburgers were 15 cents. Fries were 10 cents and a drink was 5 cents. I remember my mom, sister and I having a lunch with all three items and getting change back from her dollar. Today, a hamburger is $0.89, french fries and a small drink are $1 each for a total meal cost of $2.89. (By the way, I also remember when an ice cream cone was a nickel a scoop :-)

So the cost of gasoline and a fast food meal is up about 10 times in forty years. If I apply the same factor to 40 years in the future, gasoline will cost $38 per gallon and a fast food meal will cost $29. In 2048, my daughter will likely remember $3.80 gas and a $3.00 fast food meal as the good old days :-)

Disclaimer: The historical prices are based on my childhood memories and may not be completely accurate.

For more on Crossing Generations, check back every Thursday for a new segment.

Wednesday, June 04, 2008

We really like our house. We live in a middle class neighborhood with a good school district. We hope to live here until our daughter graduates from high school. As a result, we do not take any financial risks with our house. Here's our financial do's and don'ts for our house:

Our Do's:

Think of a house only as our home. It's a place to live, enjoy and raise a family. Although it does have a value, we don't think of it as an investment, an appreciating asset or savings. We don't worry if our house is going up or down in value since we aren't planning to sell in the near future.

Know a house is a big expense. If we were barely meeting our expenses while renting, we would not buy a house. To me, the cost of owning is much higher than renting. There is the mortgage, taxes and upkeep. Not to mention the additional time and effort one needs to spend on maintenance.

We try to set aside 1-2% of our house value each year for eventual major repairs, e.g. new roof, new furnace, that do not occur every year. For example, this year we have replaced a furnace and a/c unit and will replace our roof, at a cost of 6% of our home value.

Get a mortgage that is easy to pay now and in the future. When we bought our house, we could have easily qualified for a 15 year mortgage for 80% of the home value. We chose a 30 year fixed rate mortgage for 60% of the home value to keep our payments lower. When possible, we do send in extra principal payments and are on track to payoff the mortgage in 15 years.

I have never seriously considered an adjustable rate mortgage. I prefer knowing that my monthly payment will be constant for the entire time that I have the mortgage.

Our Don'ts

Think of house as savings or an investment. We don't count our home equity in our retirement savings analysis. That's because, unlike stocks, we do not expect to sell our house to raise cash for yearly living expenses.

Borrow against the increased equity. We don't think of our house as a ATM to get cash. If our house increases in value, we don't borrow against that part. However, I consider OK to refinance the loan for the original amount and time, but at a lower interest rate. This reduces the monthly payment and allows some cash to be taken out.

We prefer to take minimum financial risk when it comes to our home. It's something that we definitely don't want to lose because of a short term financial set back.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Tuesday, June 03, 2008

With the recent stock market correction, there are lots of beaten down stocks, such as Pfizer (PFE), and Ford (F) and especially financial stocks including Citigroup (C), Bank of America (BAC) and many more. Buy GM by Vito Racanelli in Barron's recommends the auto maker General Motors (GM) as a potential triple in two years.

However, as attractive as the prices are for these well known stocks, I am resisting buying any of these shares, even the ones with 6-7% dividends, such as Pfizer and Bank of America. Here's why I'm not buying:

Down for business reasons. Many of the companies mentioned have low prices due to business issues, e.g. credit crisis, insufficient product pipeline, or poor execution. Unless the issues are corrected, these stocks won't likely do well, even if they historically were a solid stock.

Can go lower. Two weeks ago, I was surprised that Pfizer was priced around $20 dollars, a 9-1/2 year low, with a 6.4% dividend. I thought, "How much lower can it go?" and thought briefly about buying it, but did not. Well, today, the stock has been as low as $18.93.

There are other better options. Rather than buy stocks going down, I prefer to own stocks that are going up. Yes, there are still stock rising in this volatile market. Potash (POT), which has been on my buy list since May, 2007, is one great example. Potash is up 41% in 2008.

Of course, some of these companies will be able to solve their business issues and turnaround the stock price. However, I am happy to wait for a clear confirmation. If there is a turnaround, the stock will still be a good deal, 20, 50 or even 100% higher than today.

Disclosure: As of the publication date, I own shares of Potash in my personal trading account. Pfizer, Citigroup, and Bank of America are owned in accounts managed by our financial advisor.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Monday, June 02, 2008

With the market decline of early 2008, these stock purchase updates have not been as fun to write. However, I am going to remain disciplined and do a weekly update until I sell the positions from the portfolios. The original portfolio was based on a 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) and a January, 2008 stock pick update of Apple (AAPL), Research in Motion (RIMM), Intuitive Surgical (ISRG), Priceline (PCLN), Core Labs (CLB), and Google (GOOG).

The overall portfolio gained 2.2% last week and now has total return of 20.2%. The three of the remaining holding all rose this week and all now have positive gains. Google had a very good rally this week. Here's the current status of the stocks in the portfolio:

*On 2/8/2008, the system gave a sell signal for CLB.** On 3/7/2008, the system gave a sell signal for AAPL and GOOG. Previously, I had planned to hold GOOG since it is part of my core holdings. However, now I will sell this portfolio's remaining 20 shares (or an equivalent number of shares purchased earlier) of GOOG over the next few weeks, if the shares continue to rally.

The market continues to be choppy. As of the close on 5/30/08, the Dow, Nasdaq and S&P 500 indices were respectively down 3.71%, 4.89%, and 3.80% year to date. Although significantly up from lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update, it still doesn't feel like a confirmed uptrend yet.

I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in early 2008 has caused the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008 with many short term rallies and declines. For now, I do not plan to add any more to the amounts that I have already invested in the above tables and will be looking to close out positions, even without a sell signal. I will take some profits on long term gains at a 0% tax rate on Potash and Google when possible. Also, I may sell Intuitive Surgical if it does not rise pass $307 in the next two weeks.

Full disclosure: I own all the stocks mentioned in this post that are not indicated as sold.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Sunday, June 01, 2008

Taking inventory, I realize that I have just about every piece of equipment to do the exercise needed. I have weights, a simple bench, yoga equipment and book, punching bag and jump rope. I've acquired a bunch of stuff, but I just haven't been using any of it. In addition, we have a space that can be semi-dedicated to exercise.

Thus, it was clear it wasn't lack of equipment but the lack of motivation. With some thought, I realized that most of my successful exercise has been social, specifically on team sports. Nowadays, exercise is more of an individual activity, e.g. running, biking, or weight lifting. Interestingly, the only time I consistently did running was when I had three to four friends with whom I ran. Currently, my only remaining social exercise is a neighborhood tennis league.

Here's what I'm doing to increase my motivation to exercise:

Increase social sport activities. My indoor tennis league is only during the fall and winter. A few of us decided to continue the league through the summer on a casual basis. In addition, two of my friends are now able to play golf on weekday mornings, which is a good off peak time to play. Finally, my wife also does yoga and we could train together. My goal is to have two social sports activities each week this summer.

Combine weight training with other compatible activity. I've decided to create a financial news center in the weight training room. Since I don't have cable, CNBC is not an option. As an alternative,I will record the Nightly Business Report each day and watch it the next morning during the exercise period. I will also record WealthTrack on weekends. In addition, I will start knocking off my backlog in educational or entertainment videos.

Do exercise first thing in the morning. Since retiring in my forties in 2007, I've stopped getting up at 5:30 AM and am sleeping until 7:30 AM regularly. While I have enjoyed the extra sleep, I now realize I need to do activities like exercise before the rest of the family is awake. It looks like I'm going back to at least a 6:30 AM wake up.

This morning was the first match of our informal summer tennis league, at 7AM on Sundays. We were able to play a two set match and finish by 8:30AM. Tomorrow, I will begin my weight training and watch the Night Business Reports and WealthTrack that I missed from last week. Finally, this week I will develop a yoga routine that I can do with my wife.

We'll see how exercising goes for the month of June, 2008. If it goes well, I may be able to achieve the first of my 2008 New Year's resolutions, losing 10% of my weight :-)

For more on New Beginnings, check back every Sunday for the next segment.

This is not financial or health advice. Please consult a professional advisor.

About Me

My wealth goal is to create a guaranteed yearly income stream equal to my highest salary for my retirement years. While I have developed a strategy to do this,
I am interested how others are thinking of achieving financial security for retirement.
This blog is a summary of facts, ideas, discussions, and action plans to achieve that goal.

Disclaimer

This is a personal blog about my thoughts, experiences and ideas on building wealth. The contents of this blog are for informational purposes only. No content should be construed as financial advice. Commenters, advertisers and linked sites are entirely responsible for their own content and do not represent the views of My Wealth Builder. All financial decisions involve risks and results are not guaranteed. Always do your own research, due diligence and consult your own professional advisor before making any decision. My Wealth Builder assumes no liability with regard to financial results based on use of information from this blog.

If this blog contains any errors, misrepresentations, or omissions, please contact me or leave a comment to have the content corrected.

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Disclaimer:
This is a personal blog about my thoughts, experiences and ideas on building wealth. The contents of this blog are for informational purposes only. No content should be construed as financial advice. Commenters, advertisers and linked sites are entirely responsible for their own content and do not represent the views of My Wealth Builder. All financial decisions involve risks and results are not guaranteed. Always do your own research, due diligence and consult your own professional advisor before making any decision. My Wealth Builder assumes no liability with regard to financial results
based on use of information from this blog.

If this blog contains any errors, misrepresentations, or omissions, please contact me or leave a comment to have the content corrected.